Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—WDNC: Homeowners Fail to Plead Deceptive Trade Practices Claim Over Builder’s Cost Estimates, (Jan 11, 2013)

By Tobias J. Gillett, J.D., LLM.

North Carolina homeowners failed to allege a claim under North Carolina’s deceptive trade practices statute concerning a construction company’s allegedly misleading cost estimates because the parties had negotiated a “cost-plus” contract rather than a fixed price contract, and thus the homeowners bore the risk of increased costs, and because the homeowners did not provide evidence that would permit a finding that the builder had deliberately provided unreasonably low estimates, the federal district court in Bryson City, North Carolina has ruled (Gunkel v. Robbinsville Custom Molding, Inc., January 10, 2013, Reidinger, M.).

The homeowners had contracted with Robbinsville Custom Molding, Inc. (RCM) for construction of a residence. The homeowners agreed to pay RCM’s actual cost of construction plus twelve percent, referred to as a “cost plus” contract.

Prior to completion of the residence, the parties executed a “Dissolution Agreement” ending their contractual relationship. Following this agreement, the home owners brought suit, alleging claims for breach of contract, fraud, deceptive trade practices, negligent misrepresentation, and negligent construction. RCM moved to dismiss.

The homeowners asserted that an RCM employee had violated North Carolina’s deceptive trade practices statute by providing “a grossly low estimate for the cost of the construction of the residence and related improvements when he knew the actual cost of the construction would ultimately be far greater.”

The court first cited the 1989 North Carolina Court of Appeals decision in Quate v. Caudle, 95 N.C. App. 80, for the proposition “that knowingly making unrealistically low construction estimates in order to induce an owner to enter a contract could support a deceptive trade practices claim.” Nonetheless, the court distinguished Quate on the ground that the contract in that case was a fixed-price contract, meaning that the “the unrealistically low estimate was actually an unrealistically low contract price,” and that the contractor in that case had committed a deceptive trade practice by entering the contract without an intent to perform.

Here, the homeowners had negotiated a “cost-plus” contract, and thus bore the risk that the costs of the project would increase above the estimates. Moreover, in Quate the owners had contracted to purchase a product, a log home, while in the present case the homeowners had contracted for a service, the construction of a residence. The homeowners also did not allege any pattern of unrealistically low estimates as had been alleged in Quate.

Furthermore, the court found the homeowners’ evidence insufficient to support a claim that RCM had intentionally provided “grossly low” estimates. The homeowners had made numerous changes to the project during construction that significantly increased the cost of construction. RCM provided expert testimony from a licensed architect to the effect that its estimates for the initial construction cost had been reasonable, while the homeowners only pointed to the difference between the estimates and the final cost as evidence of the unrealistic nature of the estimates.

The court therefore found that “[w]hat portion of the increase was due to the many expensive change orders as opposed to any purposeful ‘low-balling’” was “purely a matter of conjecture,” insufficient to survive summary judgment. The court thus granted summary judgment to RCM on the deceptive trade practices claim. The court also granted summary judgment to RCM on the remainder of the homeowners’ claims.

The case is No. 2:11cv07.

Hayley Roper Wells (Ward and Smith, P.A.) for Robert Gunkel. Ervin Lincoln Ball, Jr. (Ball, Barden & Bell, P.A.) for Robbinsville Custom Molding, Inc.

Cases: ConsumerProtection StateUnfairTradePractices NorthCarolinaNews